[Lords] (By Order)
Order for Third Reading read.
To be read the Third time on Wednesday 22 May.
Read a Second time, and referred to the Examiners of Petitions for Private Bills.
[Lords] (By Order) Order for Second Reading read.
To be read a Second time on Monday 20 May at Seven o'clock.
(By Order) Order read for resuming adjourned debate on Question [13 May], That the Bill be now read a Second time.
Debate further adjourned till Wednesday 22 May.
(No. 3) Bill-- [Lords] (By Order) Orders for Second Reading read.
To be read a Second time on Wednesday 22 May.
The Chief Secretary to the Treasury (Mr. David Mellor) : In the latest quarter, manufactured export volumes--excluding erratics--were 3 per cent. up on a year earlier, compared with a fall in imports of 4 per cent.
Mr. Hunter : Will my right hon. and learned Friend confirm that during the past two years, the United Kingdom's share of the world trade in manufactures has increased, that United Kingdom manufacturing exports have increased by 18 per cent. and that this year investment in United Kingdom manufacturing industry is expected to increase by 60 per cent. over the 1981 figure? Does not that make a mockery of Opposition attempts to spread doom and gloom?
Mr. Mellor : A number of manufacturing industries are certainly going through a difficult time at present, and nothing that I say is intended to diminish that fact. As the main answer to the question and some of the points made by my hon. Friend the Member for Basingstoke (Mr. Hunter) show, manufacturing industry is well capable of bouncing back from this recession and there are all manner of good statistics to be drawn from our performance. When points are made about investment, the extent to which investment increased in the late 1980s should be borne in mind.
Mr. Nicholas Brown : Will the Chief Secretary acknowledge that export-led manufacturing industry plays an important part in this country's employment base? The Chief Secretary and his fellow Ministers were quick enough to claim the credit when they thought that unemployment was coming down. Now that we are in the 13th month in which the unemployment figures have risen, rather than fallen, will the Chief Secretary, on behalf of the Government's Treasury team, come to the Dispatch Box and take his share of the blame?
Mr. Mellor : It is true that manufacturing export performance is important in this country. That is why, despite the Labour party's perennial endeavour to talk down British industry and important parts of it, it is worth while saluting our manufacturing performance. Manufacturing exports have done well in recent years. In the British car industry, figures for the first quarter of this year show a 40 per cent. increase in exports compared with a year earlier. That is impressive and shows the underlying strength of British manufacturing.
Column 411The Financial Secretary to the Treasury (Mr. Francis Maude) : The basic and highest rates of income tax on income in 1978-79 were 33 per cent. and 98 per cent. respectively. The equivalent current rates are 25 per cent. and 40 per cent.
Mr. Shaw : Will my hon. Friend confirm that, since they have been in office, the Government have consistently kept their promises to reduce the rates of income tax? Will he confirm that all past Labour Governments have increased income tax rates? Will he further confirm that under the last Labour Government, the brain drain reached record levels, with management figures going abroad because they were too highly taxed in this country?
Mr. Maude : I can certainly confirm that we have consistently and steadily brought down income tax rates and we propose to continue doing so. My hon. Friend was not quite right about the record of past Labour Governments. In fairness to the Labour party, I should say that the Attlee Government briefly reduced the basic rates of income tax before putting them up again, and the Ramsey MacDonald Government of 1924, during its nine months in office, failed to put up basic tax rates. But with those exceptions, Labour Governments throughout history have always raised income tax.
Mr. Cousins : Does the Financial Secretary agree that the combination of the tax system and the benefit system means that low-income families are being taxed by a combination of tax and benefit withdrawal at a rate of more than 90 per cent.? Does he agree that, in the new classless society that has been created, we have incentives for the rich, but not for the poor?
Mr. Maude : Absolutely not. The intention behind the tax reforms that we have introduced was to take out of tax 2 million people who would have paid tax if the regime left by the Labour Government had remained in force. Two million people who would have paid tax under a Labour Government do not pay any tax at all. The benefit reforms that we have introduced were specifically designed to reduce the high marginal rate of the combination of tax and withdrawal of benefit to which the hon. Gentleman refers. It is better now than it was under the regime left by the Labour Government.
Mr. Peter Bottomley : Does my hon. Friend believe that enough people have understood the point made by the Labour party that it intends to introduce a savings penalty of 9 per cent. on all savings income of more than £3,000? Would not that reduce the funds to building societies and cut the chances of people borrowing money to own their own homes?
Mr. Maude : I find it difficult to understand how the Labour party can in one breath proclaim the merits of saving and investment and say that it proposes to increase the tax on savings. We believe that it is right that people should save. It is good for individuals and for families because it makes them more independent and less dependent on the state and it increases the funds available for investment. That is important. It will be interesting to hear how the Labour Front Benchers square that with their proposal to increase the tax on savings, or does Labour simply not care?
Mrs. Beckett rose--
Having given the figures for income tax in 1979 and the present year, will the Financial Secretary now give the figures for national insurance contribution rates in 1979 and the present year, for value added tax rates in 1979 and the present year and for the overall tax burden in 1979 and the present year, which include both those figures as well as the cuts in income tax?
Mr. Maude : As I understand the rules of the House, if the hon. Lady wishes to table a question to me about these fascinating and important matters, I shall provide her with a detailed and specific answer. However, as this question is about something completely different, I shall decline to do so. The hon. Lady mentioned the overall tax burden now compared with- - [Interruption.] The hon. Member for Derby, South (Mrs. Beckett) asked a question about the tax burden and I shall provide an answer. If Labour Front Benchers would quieten down, they would have an opportunity to hear it.
It is right to say that the tax burden in 1980-81 increased substantially compared to that in 1978-79. It was necessary to raise taxes to pay off the enormous burden of debt levied on the country by the Labour Government--the right hon. and learned Member for Monklands, East (Mr. Smith) was a member of the Cabinet. The Labour Government reduced the tax burden, but they did so at the expense of increasing the tax burden on future generations. That is not a responsible way to proceed. Since 1980-81 the total tax burden has steadily fallen and it continues to do so.
The Chancellor of the Exchequer (Mr. Norman Lamont) : I pay close attention to a range of indicators of inflation. I am currently considering the recommendation of the Select Committee on Treasury and Civil Service for a new index of consumer prices comparable with that of our European Community partners.
Mr. Beith : When the retail prices index is published tomorrow, will the Chancellor draw attention to the advice of the present Prime Minister, given a year ago, that the RPI is an inaccurate measure of underlying inflation? Is it true that the Bank of England has developed a new index of contemporary inflation which suggest that underlying inflation is remaining stubbornly high and may be influencing the Governor's current advice to the Government?
Mr. Lamont : On the first point, the RPI could hardly measure underlying inflation as it is a measure of headline inflation. It is the measure which matters to wage bargainers and to consumers, so it is good news for the country that it is coming down. It matters to pensioners, it matters to savers and it matters to British industry. All that the hon. Gentleman does is sit and nit-pick. We have said consistently that when looking at inflationary pressures we look at the underlying rate. The underlying
Column 413rate, excluding mortgage interest payments, has come down by 1 per cent. in the past six months. We are winning the battle against inflation and we shall go on winning it.
Mr. Charles Wardle : Surely the headline rate is what matters most to people with mortgages and community charge bills to pay. Is not the underlying rate likely to take a little longer to drop because of high wage settlements last autumn? Is not it likely to come down anyway later in the year if current policies are maintained?
Mr. Lamont : My hon. Friend is right. Obviously, the underlying rate comes down less quickly than the headline rate. The underlying rate did not go up nearly as much as the headline rate did, so there is no great issue to be made out of that. My hon. Friend is also right about earnings in manufacturing industry. It is extremely good news that, in the past two months, the rate of increase in earnings in manufacturing industry has gone down by 1 per cent. That shows that people are adjusting to inflation coming down.
Mr. Corbett : I thank the Chancellor for that reply. Why does he keep insisting that Government economic policies are working when almost 3 million of our fellow citizens are not? Does he see any connection between the loss of 1,000 manufacturing jobs each day for the first 90 working days of this year and high interest rates? Will he acknowledge that electors were looking forward to a June election because it is only during election periods that the Government manage to get interest rates down?
Mr. Lamont : Rising unemployment and the recession have been the price that we have had to pay to get inflation down. That price is well worth paying. I remind the hon. Gentleman that, under the previous Labour Government, inflation was never lower than 7.4 per cent. We shall have an average rate of inflation for the whole of this year lower than that.
Mr. Tim Smith : Contrary to the pessimistic forecasts of the anarcho -monetarists who wrote a letter to The Times a couple of months ago, is not it clear that Britain's membership of the exchange rate mechanism has been a great success, that it has led to exchange rate stability and lower interest rates and that there is every prospect that those will continue?
Mr. Lamont : My hon. Friend is right. Only a few months ago, when we joined the exchange rate mechanism, people said that our only choice was to devalue and leave the ERM or we would be unable to cut interest rates. In fact, we have been able to cut interest rates by 3 per cent. That has been good news for business and it has also been extremely good news for mortgage holders. Since last October, the average mortgage payment has come down from £290 to £240 per month, saving the average mortgage payer £50 a month. First-time buyers are doing even better because of competition between the building societies.
Dr. Marek : Will the Chancellor confirm and afterwards perhaps explain why interest rates were 12 per cent. or more for 60 months between 1979 and 1991 whereas, starting with the Attlee Government in 1945 all the way through until 1979, they were higher than 12 per cent. for only 26 months? Under the Conservative Administration of the past 12 years, interest rates seemed to be lower than 12 per cent. only in 1983, in 1987 and now in 1991. Are not the temporary low interest rates a politically expedient, but economically inadvisable blip? As soon as the Government win the next election--they hope--they will raise interest rates again.
Mr. Lamont : The hon. Gentleman is always telling us not to go back and make comparisons with the Labour Government, but now he seems to want us to go back all the way to the second world war, to a period when there was exchange control and control of bank lending. Interest rates all over the world were higher in the 1980s than they were in the 1940s, 1950s, 1960s or 1970s. That has not prevented Britain's economy from growing more rapidly in the 1980s than before, despite the fact that we have had relatively high interest rates.
Mr. Maude : The small companies rate of corporation tax is 25 per cent. compared with 42 per cent. at the time of the 1979 general election. The profits limit for the small companies rate will be raised this year to £250,000, compared with £50,000 in 1979, and the threshold for marginal relief will be £1,250,000, compared with £85, 000 in 1979.
Mr. Gill : As one who vividly remembers the difficulties and frustrations of running a business under the last Labour Administration, may I say how much I welcome my hon. Friend's reply? The relative improvement since 1979 is substantial and welcome, but will my hon. Friend never lose sight of the fact that substantial additional benefits can be gained by continuing to reduce the rates of tax in the corporate sector?
Mr. Maude : My hon. Friend puts a powerful case. It is worth pointing out that, at 33 per cent., the main rate of corporation tax for the coming year is now lower than the small companies rate was under Labour, and that is a huge benefit for small and large companies alike. We now have a corporation tax regime which is more generous and lower than that in any other country in the EC or in the Group of Seven. That puts the United Kingdom in an advantageous position which we shall seek to maintain and enhance. The House is waiting for some answers to the questions that we put to the Labour party about its proposal for new capital allowances. We want to know how much that would cost and whether the Labour party would increase the rate of corporation tax to pay for it.
Ms. Short : Labour Members of Parliament in Birmingham recently met the West Midlands Employers Federation. The situation there is desperate and worrying for manufacturing firms which are trying to invest and survive. The Minister should not mislead the House about its seriousness. Manufacturers badly want to be able to
Column 415offset corporation tax against investment, which will result in higher investment in our country. Will the hon. Gentleman consider that?
Mr. Maude : I am a west midlands Member myself and I am aware of the difficulties that some businesses are experiencing in the west midlands, as elsewhere. I am also aware of the news from the car industry. Production of cars in the west midlands, as elsewhere, has increased this year. The number of cars produced for export has more than doubled and overall production has increased compared with last year. Exports have increased by 40 per cent. with the British car industry now exporting two thirds as many cars as are imported, compared with one third only a year or two ago. That is good news. It would be nice to hear the hon. Lady giving the credit that is due to the managers and work force in the British car industry who, in the past decade, have transformed the way in which the industry performs. It is now a powerful and good industry, not the joke that it used to be.
6. Mr. Fishburn : To ask the Chancellor of the Exchequer what is the estimated public sector borrowing requirement for this financial year ; and what are the comparable figures for the United States of America and the average of all European Community countries.
Mr. Norman Lamont : The latest forecast is a public sector borrowing requirement of £7.9 billion, around 1 per cent. of GDP. Substantially larger fiscal deficits are expected in the United States and on average among European Community countries.
Mr. Fishburn : Will my right hon. Friend confirm that of the seven largest industrial countries, only Japan has a stronger fiscal position than Britain? Will he further confirm that to borrow 1 per cent. of GNP after some years of healthy surplus is altogether different from borrowing 6 per cent., as happened year after year under the last Labour Government?
Mr. Lamont : My hon. Friend is right. The fact that we have run a strong fiscal position has meant that we have been able to spend money on priority programmes. As my hon. Friend said, under the last Labour Government, the PSBR averaged 6er cent. of GDP. That is equivalent today to £40 billion. We have repaid debt of some £27 billion, enabling us to save £3 billion a year for the taxpayer--the equivalent of 50 new hospitals a year or 10 per cent. more on health care. The fastest growing part of the Labour party's public expenditure programme would be debt interest.
Mr. Campbell-Savours : Recognising the linkage between the public sector borrowing requirement and interest rates, why was it that in 1983 and in 1987, which were both election years, interest rates were at the bottom of the trough? Does the Chancellor intend to orchestrate another cut in interest rates, against the advice of the Governor of the Bank of England? If the right hon. Gentleman opposes that action, what does he intend to do?
Column 416disagreement between the Governor of the Bank of England and myself over interest rate policy. Our position is that interest rates will be maintained in order to safeguard our position in the exchange rate mechanism, and we will have the flexibility to reduce interest rates as and when inflation comes down.
Sir Peter Tapsell : Will my right hon. Friend bear in mind that of all the unreliable statistics on which the Treasury has to pontificate, the public sector borrowing requirement is the most unreliable of all--as events have proved so many times in the past? It is always a mistake to base too much of the Government's economic policy on the current PSBR figure.
Mr. Lamont : My hon. Friend is right to point out that the PSBR is the difference between two very big magnitudes, and therefore is subject to enormous swings. However, our interest rate policy is not based on the PSBR. I think that the hon. Member for Workington (Mr. Campbell-Savours), was making the point that the PSBR has a consequential effect on interest rates.
Mr. Skinner : Is not the truth of the matter that Britain enjoyed a manufacturing trade surplus every year since the industrial revolution, until this mob came into government, and finished up with a deficit in 1982? We had a trade surplus when we had the spinning-jenny and when we invented the steam engine, but now, under this gang of spivs, we have a plastic economy--and the wheels have dropped off.
Mr. Mellor : I am grateful to the hon. Gentleman for the typically understated way in which he asked his question, and for auditioning for the job of conducting the proms at the same time. As the hon. Gentleman knows, the manufacturing deficit turns on the increase in exports and in imports. As it happens, during the period that we moved into deficit, the increase in exports year-on-year was running at 7 per cent. between 1983 and 1990. The hon. Gentleman may be interested to have the comparative figure under Labour between 1974 and 1979, when manufacturing exports achieved a year-on -year increase of 2 per cent. The increased prosperity of the 1980s of course brought increased demand for imported goods.
Mr. Devlin : Has my right hon. and learned Friend had an opportunity to study reports on manufacturing industry in the north of England? They show that it is holding up very well in the northern region and that small firms are doing better than large companies in the present recession. Is not that a credit to the Government, who have pursued a policy of broadening employment from the large manufacturing industries, such as shipbuilding and steel, across a wider variety of small businesses employing people in many different types of work?
Mr. Mellor : What my hon. Friend has said is true not only of the northern region but of south Wales and Scotland, where a much more diversified manufacturing economy now exists than ever before. Most notably, this
Column 417shows the confidence of overseas investors in the United Kingdom and in those regions. The number of Japanese companies now investing in the north is especially noteworthy.
Mr. John Smith : Does the Chief Secretary not appreciate that, as well as the figures that show fast-rising unemployment, we have today seen figures released by the Central Statistical Office that reveal that investment has plummeted by 20 per cent. in the past year? Is that not the most awful way to prepare for the operation of the single market after 1992? What do the Government intend to do about that fall in investment?
Mr. Mellor : The right hon. and learned Gentleman fails to disclose that any fall in investment represents a fall from the dramatically higher level--indeed, the historically high level--of the past few years. The right hon. and learned Gentleman shakes his head, but I gave him the figures yesterday. [Interruption.] The right hon. and learned Gentleman seems to want to ask questions and then to intervene from a sedentary position, but I shall give him the figures anyway.
Total business investment in 1978 amounted to £35.8 billion at 1985 prices. By 1988 the figure had risen to £52 billion, in 1989 it had reached £56 billion, and in 1990 it stood at £55 billion. To criticise the Government for a fall from historically high levels is not to go to the root of the matter.
Of course we regret any reduction in investment, even when it represents a fall from very high levels, but, given the performance of manufacturing industry in the export market, even during the current recession, I am confident that investment will soon bounce back to the levels that we achieved in the late 1980s.
The Minister of State, Treasury (Mrs. Gillian Shephard) : The deficit on United Kingdom trade in manufactures has fallen sharply. In the first quarter of 1991 the deficit was £1.3 billion--less than 1 per cent. of GDP and the lowest for over five years.
Mr. Irvine : Can my hon. Friend confirm that that encouraging trend in the balance of trade in manufactured goods is reflected not only in a fall in imports, but in an increase in exports? Does she agree that that in turn reflects great credit on the competitive performance of our manufacturing exporters in world markets?
Mrs. Shephard : I certainly agree. In 1990, the United Kingdom volume share of world trade in manufactures rose for the second successive year. Mention has already been made of the splendid performance of the car industry ; in the latest quarter, the volume of exports was up 40 per cent. on the previous year. My hon. Friend is absolutely right--and exports are due to increase.
Mr. John Garrett : Is the Minister aware that the Governor of the Bank of England described our recession as home grown? Given the massive reductions in export services, in assistance for innovation, and in training, how does the Minister expect us to regain our place in world manufacturing?
9. Mr. Ian Taylor : To ask the Chancellor of the Exchequer what discussions he has had with the Confederation of British Industry concerning recent Budget measures to encourage wider employee share ownership.
Mr. Taylor : Will my hon. Friend note that management is now increasingly on our side, encouraging employee share schemes and, in particular, welcoming the Budget proposals for schemes which given an incentive to all employees to participate, rather than retaining the old executive share basis? Will my hon. Friend join me in hoping that more trade unions will welcome that development, which can be shown to be in the interests of all employees and should therefore be in the interests of the unions as well?
Mr. Maude : There has certainly been a good response to the various measures introduced by the Government over a period of years to encourage employee share ownership. A total of 2 million employees have now benefited from all-employee schemes. In addition, the number of employees in profit- related pay schemes has increased by no less than 50 per cent. in the past year.
That strikes us as the right way to approach participation by employees in the firms in which they work--in stark contrast with Labour's approach, which seems to be to hand the boardroom keys to the trade union bosses who are Labour's paymasters.
Mr. William Ross : Given that one of the ways in which employee participation and ownership was increased was through the sale of nationalised industries, will the Minister give an assurance to the House that the employees of Northern Ireland Electricity and the citizens of Northern Ireland will have an opportunity to bid for and own shares in Northern Ireland Electricity when it is sold off?
Mr. Maude : That is a matter for my right hon. Friend the Secretary of State for Northern Ireland, but it is inconceivable that he would propose arrangements which would do anything other than what the hon. Gentleman suggests. It is of great importance that when nationalised industries are privatised we encourage the employees of firms to participate by direct ownership in those companies and that the local population and customers of the industry or service also become owners. That seems to us to be desirable.
Mr. Butcher : When my hon. Friend next meets the Confederation of British Industry, will he discuss its suggestion that compensation for house owners and owners of other properties affected by planning applications should be at the rate of 125 per cent. of market value? If such an increase causes an improvement in the rate at which approvals are considered, it would save an awful lot of money.
Mr. Maude : Whether my hon. Friend's question is in order or not, it is a great delight to all of us to see him back in the House in good health and reinvigorated to take part in our deliberations and to take a characteristically forthright and splendid role in our debates.
We discuss a range of matters with the CBI, although the matter to which my hon. Friend referred is not, I confess, one that I have discussed with the CBI myself. However, I look forward to doing so in the near future.
Mr. McAvoy : In an earlier answer the Minister confirmed that the level of manufactured investment had fallen by 20 per cent. in the past year. Will he also confirm that the level of manufacturing investment as a proportion of fixed investment is now lower than when the Government took office? For the sake of British industry, why does not the Treasury Bench resign and let Labour do the job?
Mr. Mellor : The key statistic is total investment in business in this country, which has shown a dramatic increase. I have given the figures. The House might be interested to know that in the 1980s total investment growth was higher in the United Kingdom than in any other country in the Group of Seven, bar one. Needless to say, between 1970 and 1980 Britain was at the bottom of that investment growth league.
Mr. Mellor : Indeed, it was. The changes that my right hon. Friend the Member for Blaby (Mr. Lawson) made in 1984 in corporation tax rates, and other benefits which resulted from the Government's policies, led to an unprecedented explosion in business investment. It is inevitable that if industrial development slows, the level of investment cannot be sustained every year. However, it is clear that even this year the investment rate will be well above that which prevailed for business generally in the 1970s in real terms. That is the key statistic.
Mrs. Fyfe : Looking to 1991 and beyond, does the Minister accept that the International Monetary Fund report predicts a fall in investment for 1991 and that the Confederation of British Industry is even more pessimistic in its forecasts? Is it not true, as my hon. Friend the Member for Glasgow, Rutherglen (Mr. McAvoy) said, that that bunch on the other side of the House ought to